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The New York Times reports that the market was up 190 points yesterday and has risen 11% in the last few weeks. Not only that, but AP says that the jobless rate fell to 5% in April -- better than the expected 5.2% rise. So does this mean that happy days are here again? No. And you should use today's rally to take money off the table if you have any.
Why? Things are not good for the consumer who accounts for 70% of economic growth. My mailman stopped me yesterday after my run and gave me a grim look. He is very friendly and talks to many people on his delivery route and elsewhere. And he told me that with gasoline prices so high, many people are canceling their vacations so they can pay their bills.
As I posted here, gasoline prices are gobbling up a bigger and bigger piece of the median family's income. And USA Today reports that worldwide food prices have skyrocketed 45% -- sending consumers on a recession diet. Businesses are having trouble getting money from banks because the banks still have $500 billion in hard-to-value assets which requires them to hold onto every scrap of capital they can get.
So while Wall Street wants you to plunge in and buy into the rally we'll see today, it may be in your best interest to consider selling into it instead. As the frozen $330 billion Auction Rate Securities market proves, Wall Street is quite capable of putting its own interests ahead of those of investors.
Peter Cohan is President of Peter S. Cohan & Associates. He also teaches management at Babson College and edits The Cohan Letter.
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Reader Comments (Page 1 of 1)
5-02-2008 @ 1:46PM
Roger Hefferan said...
Peter,
You are so right on!
Your stuff is always good, but today you told it like it is when Wall Street really would like to pull the wool ovr people's eyes in order to pull their chips out of the fire.
Go, Peter, go!
Roger
5-02-2008 @ 2:02PM
Americas Watchdog said...
Great Blog Peter;
We have Amercas Watchdog and we could not agree with you more. We have been amazed for three weeks that the market has been going up as opposed to going down. We know the financials have at least 5 more quarters of really bad numbers, we know the housing market will get much worse, & we think employment/retail are in big trouble.
Wall Street looks out 6 to 12 months and sees an opportunity to sell more stocks.............we look out 6 to 12 months & we see 1 in 4 US homeowners owing more on their home than it is worth. (If the 1 in 4 walks away we will be in the kind of trouble that will make the 1930's look like a cake walk)
Auction Rate Securities are the perfect example of Wall Street saying all is well, when it is not. We have been trying our best to call attention to this, as we know you have. Its a $320 billion dollar time bomb that most investors on Wall Street know nothing about. We are calling the auction rate securities mess, "the worst case of fraud in US history".
Its too bad Peter you are not on CNBC every morning saying wait a minute, "here is the truth". I think in the case of the future of our economy we would put more faith in your mailman's ideas about what he is seeing, rather than some self serving broker on CNBC saying get your money back into the market.
Keep up the great work.